[EDITOR’S NOTE – Labor, immigration, FSMA, import/export – when it comes to produce law, it’s a jungle out there! This week we introduce our new Produce Law column, which will be written monthly by Legal Editor Tiffany Comprés with the renowned international produce trade law firm, Sandler, Travis & Rosenberg, P.A in Miami. We welcome your questions about produce law – just address them to email@example.com and look for the answers here.]
Given events like the recent shortage of produce in the UK, you may be considering exporting your produce if you don’t already. Alternatively, you may import to supplement your inventory periodically. What legal issues should you take into account when dealing with foreign buyers/sellers?
Your first step is to consider the U.N. Convention on Contracts for the International Sale of Goods, otherwise known as the CISG. Ratified by 84 nations, the CISG is the effective sales law of NAFTA and the effective sales law of most import/export sales. This article addresses some of the key ways in which the CISG differs from U.S. law, and highlights how these differences could affect your business.
Buyer Must Give Prompt Notice of Defects or Pay in Full
This is a crucial area in which U.S. law and international law diverge substantially. Under U.S. law, if the goods delivered do not conform to the agreement between the parties, then the buyer can obtain a reduction in the price or damages in court.
Under international law the same is true… unless notice of the non-conformity was not given in time, in which case the buyer losses all rights to compensation. In the world of fresh produce, this means that under international law a buyer must give notice of any non-conformity within a few days of receiving the shipment. Otherwise, the buyer must pay the full purchase price.
Seller Has a Right to Correct a Defective Shipment
In the U.S., the buyer has the right to terminate the agreement if the seller breaches a “condition” of the sale, no matter how minor. Under international law, however, a seller has the right to correct “errors” as long as doing so does not cause the buyer an unreasonable delay or inconvenience. This can be a huge bonus for sellers in the international market.
Seller has a Right to Withhold Shipments
Another area in which the seller has the benefit under international law is the right to withhold shipments. In the U.S., unless authorized by the contract, a seller has no right to withhold delivery simply because it fears the buyer won’t pay.
Under international law, if a seller gives notice, then it can suspend delivery or prevent the release of the goods to the buyer if the buyer may not have the ability to pay for the goods. If you aren’t using letters of credit or other mechanisms to ensure payment for produce sold abroad, this can be a valuable tool.
Always Have an Agreement in Writing
What happens if you use a purchase order or invoice and no independent contract? Usually, in these cases buyer and seller exchange form documents containing different terms. With competing terms and no signed contract, what’s the agreement, assuming there is one? Generally, the CISG is pro seller on this point and U.S. law is pro buyer.
In the U.S., if a buyer sends a purchase order and the seller responds with an acknowledgment stating the same price and quantity terms but also adding new terms, the acknowledgment may still form a binding contract and the buyer “wins”, as the new terms are not part of that contract.
Under international law, the outcome is less clear and depends on a variety of factors. The long and short is that for international sales where there is a substantial risk if something goes wrong, buyers and sellers need to be careful. Especially with fresh produce, where the product can take months to grow and ship, international sellers must be mindful that there may be no contract in place and the buyer could back out until it accepts the shipment. Best practice is to always have a separate agreement in writing.
Applicable Courts and Dispute Resolution
Lastly, under international law any dispute that will go to U.S. court will be in federal court, whereas a domestic sale case could land in state court. This is crucial for numerous reasons – in brief, federal cases are generally faster, cheaper, and the judges are better.
However, when selling to a foreign buyer it is wise to consider alternate forms of dispute resolution such as arbitration, which is essentially a private court. A key concern in international sales is that you would likely need to collect from the buyer/seller in their home country, but want to avoid the expense and uncertainty of litigating in a foreign country.
Arbitration is a solution. Not only do you decide who the judges are and how the case is handled, but the award is also easier to collect on internationally than a court judgment. This topic is beyond the scope of this article, but is important to consider.
I strongly suggest speaking to your attorney if you are dealing with international buyers or sellers. Each circumstance is different, and your lawyer will be able to guide you toward what is best for you in your particular situation.
[This column is published for the purposes of providing a general understanding of the law. It is in no way a substitute for individual legal consultation and anyone with a legal problem should not rely on these answers but should instead consult their attorney. If you have a legal problem and do not know an attorney, call your local Bar Association’s Lawyer Referral Service.]